11. Derivative Instruments and Hedging Activities
Foreign Currency Instruments
The Company designates certain foreign currency derivatives, primarily comprised of foreign currency forward contracts, as freestanding derivatives for which hedge accounting does not apply. The changes in the fair market value of these freestanding derivatives are included in selling, general and administrative expenses in the Company’s consolidated statements of income. The Company uses freestanding foreign currency derivatives to hedge foreign-currency-denominated intercompany transactions and to partially mitigate the impact of foreign currency fluctuations. The fair value of the freestanding foreign currency derivatives is based on third-party quotes. The Company’s foreign currency derivative contracts are generally executed on a monthly basis.
The Company designates as cash-flow hedges those foreign currency forward contracts it enters into to hedge forecasted inventory purchases and intercompany management fees that are subject to foreign currency exposures. Forward contracts are used to hedge forecasted inventory purchases over specific months. Changes in the fair value of these forward contracts, excluding forward points, designated as cash-flow hedges are recorded as a component of accumulated other comprehensive income (loss) within shareholders’ (deficit) equity, and are recognized in cost of sales in the consolidated statement of income during the period which approximates the time the hedged inventory is sold. The Company also hedges forecasted intercompany management fees over specific months. These contracts allow the Company to sell Euros in exchange for U.S. dollars at specified contract rates. Changes in the fair value of these forward contracts designated as cash flow hedges are recorded as a component of accumulated other comprehensive income (loss) within shareholders’ (deficit) equity, and are recognized in selling, general and administrative expenses in the consolidated statement of income during the period when the hedged item and underlying transaction affect earnings.
As of December 31, 2017 and December 31, 2016, the aggregate notional amounts of all foreign currency contracts outstanding designated as cash flow hedges were approximately $104.9 million and $90.0 million, respectively. As of December 31, 2017, these outstanding contracts were expected to mature over the next fifteen months. The Company’s derivative financial instruments are recorded on the consolidated balance sheets at fair value based on third-party quotes. As of December 31, 2017, the Company recorded assets at fair value of $2.9 million and liabilities at fair value of $4.0 million relating to all outstanding foreign currency contracts designated as cash-flow hedges. As of December 31, 2016, the Company recorded assets at fair value of $4.6 million relating to all outstanding foreign currency contracts designated as cash-flow hedges. The Company assesses hedge effectiveness and measures hedge ineffectiveness at least quarterly. During the years ended December 31, 2017, and 2016, the ineffective portion relating to these hedges was immaterial and the hedges remained effective as of December 31, 2017, and December 31, 2016.
As of December 31, 2017 and December 31, 2016, the majority of the Company’s outstanding foreign currency forward contracts had maturity dates of less than twelve months with the majority of freestanding derivatives expiring within one month as of both December 31, 2017 and December 31, 2016.
The table below describes all foreign currency forward contracts that were outstanding as of December 31, 2017 and December 31, 2016:
|
Foreign Currency
|
|
Average
Contract Rate
|
|
|
Original
Notional Amount
|
|
|
Fair Value
Gain (Loss)
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
(In millions)
|
|
|
As of December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buy Argentine peso sell Euro
|
|
|
21.40
|
|
|
$
|
0.5
|
|
|
$
|
—
|
|
|
Buy Australian dollar sell Euro
|
|
|
1.55
|
|
|
|
0.9
|
|
|
|
—
|
|
|
Buy Canadian dollar sell Euro
|
|
|
1.52
|
|
|
|
0.5
|
|
|
|
—
|
|
|
Buy Chilean peso sell Euro
|
|
|
749.55
|
|
|
|
0.6
|
|
|
|
—
|
|
|
Buy Chinese yuan sell Euro
|
|
|
8.03
|
|
|
|
25.9
|
|
|
|
0.4
|
|
|
Buy Euro sell Argentine peso
|
|
|
21.46
|
|
|
|
0.5
|
|
|
|
—
|
|
|
Buy Euro sell Australian dollar
|
|
|
1.56
|
|
|
|
4.8
|
|
|
|
(0.1
|
)
|
|
Buy Euro sell Canadian dollar
|
|
|
1.52
|
|
|
|
0.5
|
|
|
|
—
|
|
|
Buy Euro sell Chilean peso
|
|
|
749.35
|
|
|
|
1.1
|
|
|
|
—
|
|
|
Buy Euro sell Chinese yuan
|
|
|
7.84
|
|
|
|
26.5
|
|
|
|
0.2
|
|
|
Buy Euro sell Ghana cedi
|
|
|
5.61
|
|
|
|
3.0
|
|
|
|
(0.1
|
)
|
|
Buy Euro sell Hong Kong dollar
|
|
|
9.26
|
|
|
|
6.8
|
|
|
|
0.1
|
|
|
Buy Euro sell Indonesian rupiah
|
|
|
16,113.59
|
|
|
|
11.5
|
|
|
|
0.1
|
|
|
Buy Euro sell Japanese yen
|
|
|
133.88
|
|
|
|
0.4
|
|
|
|
—
|
|
|
Buy Euro sell Kazakhstani tenge
|
|
|
401.40
|
|
|
|
1.7
|
|
|
|
—
|
|
|
Buy Euro sell Mexican peso
|
|
|
22.65
|
|
|
|
59.1
|
|
|
|
3.6
|
|
|
Buy Euro sell Malaysian ringgit
|
|
|
4.84
|
|
|
|
1.6
|
|
|
|
—
|
|
|
Buy Euro sell Peruvian nuevo sol
|
|
|
3.85
|
|
|
|
4.9
|
|
|
|
—
|
|
|
Buy Euro sell Philippine peso
|
|
|
60.03
|
|
|
|
5.3
|
|
|
|
—
|
|
|
Buy Euro sell Russian ruble
|
|
|
70.38
|
|
|
|
10.8
|
|
|
|
(0.1
|
)
|
|
Buy Euro sell Thai baht
|
|
|
38.33
|
|
|
|
1.3
|
|
|
|
—
|
|
|
Buy Euro sell Taiwan dollar
|
|
|
35.59
|
|
|
|
0.6
|
|
|
|
—
|
|
|
Buy Euro sell U.S. dollar
|
|
|
1.18
|
|
|
|
59.1
|
|
|
|
0.9
|
|
|
Buy Euro sell South African rand
|
|
|
16.37
|
|
|
|
3.8
|
|
|
|
(0.3
|
)
|
|
Buy British pound sell Euro
|
|
|
0.88
|
|
|
|
3.4
|
|
|
|
(0.1
|
)
|
|
Buy British pound sell U.S. dollar
|
|
|
1.35
|
|
|
|
2.8
|
|
|
|
—
|
|
|
Buy Hong Kong dollar sell Euro
|
|
|
9.31
|
|
|
|
3.0
|
|
|
|
—
|
|
|
Buy Indonesian rupiah sell Euro
|
|
|
16,164.33
|
|
|
|
4.8
|
|
|
|
—
|
|
|
Buy Indonesian rupiah sell U.S. dollar
|
|
|
13,676.00
|
|
|
|
6.2
|
|
|
|
—
|
|
|
Buy Korean won sell U.S. dollar
|
|
|
1,077.18
|
|
|
|
5.4
|
|
|
|
0.1
|
|
|
Buy Kazakhstani tenge sell U.S. dollar
|
|
|
338.75
|
|
|
|
0.9
|
|
|
|
—
|
|
|
Buy Mexican peso sell Euro
|
|
|
22.97
|
|
|
|
7.1
|
|
|
|
(0.2
|
)
|
|
Buy Malaysian ringgit sell Euro
|
|
|
4.90
|
|
|
|
0.5
|
|
|
|
—
|
|
|
Buy Norwegian krone sell U.S. dollar
|
|
|
8.26
|
|
|
|
1.2
|
|
|
|
—
|
|
|
Buy Peruvian nuevo sol sell Euro
|
|
|
3.85
|
|
|
|
2.3
|
|
|
|
—
|
|
|
Buy Russian ruble sell Euro
|
|
|
70.47
|
|
|
|
4.4
|
|
|
|
0.1
|
|
|
Buy Swedish krona sell U.S. dollar
|
|
|
8.37
|
|
|
|
1.9
|
|
|
|
0.1
|
|
|
Buy Thai baht sell Euro
|
|
|
38.69
|
|
|
|
2.2
|
|
|
|
—
|
|
|
Buy Taiwan dollar sell U.S. dollar
|
|
|
29.78
|
|
|
|
5.9
|
|
|
|
0.1
|
|
|
Buy U.S. dollar sell Colombian peso
|
|
|
2,996.00
|
|
|
|
1.0
|
|
|
|
—
|
|
|
Buy U.S. dollar sell Euro
|
|
|
1.15
|
|
|
|
141.1
|
|
|
|
(5.3
|
)
|
|
Buy U.S. dollar sell British pound
|
|
|
1.34
|
|
|
|
6.8
|
|
|
|
(0.1
|
)
|
|
Buy U.S. dollar sell South African rand
|
|
|
13.93
|
|
|
|
1.9
|
|
|
|
(0.2
|
)
|
|
Buy South African rand sell Euro
|
|
|
15.18
|
|
|
|
0.9
|
|
|
|
—
|
|
|
Total forward contracts
|
|
|
|
|
|
$
|
435.4
|
|
|
$
|
(0.8
|
)
|
|
Foreign Currency
|
|
Average
Contract Rate
|
|
|
Original
Notional Amount
|
|
|
Fair Value
Gain (Loss)
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
(In millions)
|
|
|
As of December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buy Chinese yuan sell Euro
|
|
|
7.51
|
|
|
$
|
61.8
|
|
|
$
|
1.0
|
|
|
Buy Colombian peso sell U.S. dollar
|
|
|
3,111.41
|
|
|
|
2.6
|
|
|
|
0.1
|
|
|
Buy Euro sell Australian dollar
|
|
|
1.46
|
|
|
|
1.7
|
|
|
|
—
|
|
|
Buy Euro sell Chilean peso
|
|
|
723.80
|
|
|
|
1.0
|
|
|
|
—
|
|
|
Buy Euro sell Hong Kong dollar
|
|
|
8.11
|
|
|
|
13.4
|
|
|
|
0.1
|
|
|
Buy Euro sell Indonesian rupiah
|
|
|
14,394.40
|
|
|
|
9.4
|
|
|
|
(0.1
|
)
|
|
Buy Euro sell Japanese yen
|
|
|
122.54
|
|
|
|
0.6
|
|
|
|
—
|
|
|
Buy Euro sell Mexican peso
|
|
|
22.01
|
|
|
|
52.2
|
|
|
|
1.2
|
|
|
Buy Euro sell Peruvian nuevo sol
|
|
|
3.61
|
|
|
|
3.9
|
|
|
|
(0.1
|
)
|
|
Buy Euro sell Philippine peso
|
|
|
53.11
|
|
|
|
5.4
|
|
|
|
(0.1
|
)
|
|
Buy Euro sell Russian ruble
|
|
|
68.37
|
|
|
|
5.6
|
|
|
|
(0.3
|
)
|
|
Buy Euro sell U.S. dollar
|
|
|
1.08
|
|
|
|
74.5
|
|
|
|
(1.5
|
)
|
|
Buy Euro sell South African rand
|
|
|
15.02
|
|
|
|
3.4
|
|
|
|
(0.1
|
)
|
|
Buy British pound sell Euro
|
|
|
0.84
|
|
|
|
3.1
|
|
|
|
—
|
|
|
Buy Hong Kong dollar sell Euro
|
|
|
8.11
|
|
|
|
11.9
|
|
|
|
(0.1
|
)
|
|
Buy Indonesian rupiah sell Euro
|
|
|
14,222.02
|
|
|
|
3.9
|
|
|
|
—
|
|
|
Buy Korean won sell U.S. dollar
|
|
|
1,167.30
|
|
|
|
5.0
|
|
|
|
(0.2
|
)
|
|
Buy Kazakhstani tenge sell U.S. dollar
|
|
|
342.00
|
|
|
|
0.9
|
|
|
|
—
|
|
|
Buy Mexican peso sell Euro
|
|
|
21.30
|
|
|
|
11.9
|
|
|
|
(0.3
|
)
|
|
Buy Norwegian krone sell U.S. dollar
|
|
|
8.70
|
|
|
|
1.1
|
|
|
|
—
|
|
|
Buy Peruvian nuevo sol sell Euro
|
|
|
3.57
|
|
|
|
1.0
|
|
|
|
—
|
|
|
Buy Philippine peso sell Euro
|
|
|
52.42
|
|
|
|
1.7
|
|
|
|
—
|
|
|
Buy Russian ruble sell Euro
|
|
|
67.50
|
|
|
|
3.2
|
|
|
|
0.1
|
|
|
Buy Swedish krona sell U.S. dollar
|
|
|
9.17
|
|
|
|
0.8
|
|
|
|
—
|
|
|
Buy Taiwan dollar sell U.S. dollar
|
|
|
32.08
|
|
|
|
17.1
|
|
|
|
(0.1
|
)
|
|
Buy U.S. dollar sell Colombian peso
|
|
|
3,092.61
|
|
|
|
5.6
|
|
|
|
(0.1
|
)
|
|
Buy U.S. dollar sell Euro
|
|
|
1.06
|
|
|
|
140.4
|
|
|
|
4.5
|
|
|
Buy U.S. dollar sell Japanese yen
|
|
|
117.39
|
|
|
|
0.5
|
|
|
|
—
|
|
|
Buy U.S. dollar sell South African rand
|
|
|
14.14
|
|
|
|
2.1
|
|
|
|
(0.1
|
)
|
|
Buy South African rand sell Euro
|
|
|
14.75
|
|
|
|
0.4
|
|
|
|
—
|
|
|
Buy South African rand sell U.S. dollar
|
|
|
14.24
|
|
|
|
1.1
|
|
|
|
—
|
|
|
Total forward contracts
|
|
|
|
|
|
$
|
447.2
|
|
|
$
|
3.9
|
|
The following tables summarize the derivative activity during the years ended December 31, 2017, 2016, and 2015 relating to all the Company’s derivatives.
Gains and Losses on Derivative Instruments
The following table summarizes gains (losses) relating to derivative instruments recorded in other comprehensive loss during the years ended December 31, 2017, 2016, and 2015:
|
|
|
Amount of Gain (Loss) Recognized
in Other Comprehensive Loss
For the Year Ended
|
|
|
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
|
|
|
(In millions)
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange currency contracts relating to inventory
and intercompany management fee hedges
|
|
$
|
(7.9
|
)
|
|
$
|
8.1
|
|
|
$
|
14.8
|
|
As of December 31, 2017, the estimated amount of existing net gains related to cash flow hedges recorded in accumulated other comprehensive loss that are expected to be reclassified into earnings over the next twelve months was $0.3 million.
The following table summarizes gains (losses) relating to derivative instruments recorded to income during the years ended December 31, 2017, 2016, and 2015:
|
|
|
Amount of Gain (Loss)
Recognized in Income
For the Year Ended
|
|
|
|
|
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
|
Location of Gain (Loss)
Recognized in Income
|
|
|
|
(In millions)
|
|
|
|
|
Derivatives designated as hedging
instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange currency contracts relating to
inventory hedges and intercompany
management fee hedges(1)
|
|
$
|
(0.1
|
)
|
|
$
|
0.2
|
|
|
$
|
0.4
|
|
|
Selling, general and
administrative expenses
|
|
Derivatives not designated as hedging
instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange currency contracts
|
|
$
|
(8.6
|
)
|
|
$
|
(4.3
|
)
|
|
$
|
(4.1
|
)
|
|
Selling, general and
administrative expenses
|
|
(1)
|
For foreign exchange contracts designated as hedging instruments, the amounts recognized in income primarily represent the amounts excluded from the assessment of hedge effectiveness for the years ended December 31, 2017 and 2016. For the year ended December 31, 2015, there was a $1.3 million benefit related to hedge ineffectiveness partially offset against a $0.9 million expense related to amounts excluded from the assessment of hedge effectiveness recognized in income (loss).
|
The following table summarizes gains (losses) relating to derivative instruments reclassified from accumulated other comprehensive loss into income during the years ended December 31, 2017, 2016, and 2015:
|
|
|
Amount of Gain (Loss) Reclassified
from Accumulated Other
Comprehensive Loss into Income
|
|
|
Location of Gain
(Loss) Reclassified
|
|
|
|
For the Year Ended
|
|
|
from Accumulated Other
|
|
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
|
Comprehensive Loss into
Income (effective portion)
|
|
|
|
(In millions)
|
|
|
|
|
Derivatives designated as hedging
instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange currency contracts relating to
inventory hedges
|
|
$
|
(0.5
|
)
|
|
$
|
14.7
|
|
|
$
|
15.8
|
|
|
Cost of sales
|
|
Foreign exchange currency contracts relating to
intercompany management fee hedges
|
|
$
|
(2.2
|
)
|
|
$
|
0.3
|
|
|
$
|
0.2
|
|
|
Selling, general
and administrative
expenses
|
The Company reports its derivatives at fair value as either assets or liabilities within its consolidated balance sheets. See Note 13, Fair Value Measurements, for information on derivative fair values and their consolidated balance sheets location as of December 31, 2017 and 2016.